The European Commission has cleared under the EU Merger Regulation the proposed acquisition of certain refinery assets of Shell Deutschland Oil GmbH located in Hamburg/Harburg (Germany) by Nynas AB of Sweden. The Commission’s in-depth investigation showed that a closure of the Harburg refinery assets is the most likely scenario in the absence of the proposed transaction. This would significantly reduce the production capacity in the European Economic Area (EEA) market for naphthenic base and process oils, which are used in a variety of products (e.g. industrial rubber, adhesives, fertilisers), and for transformer oils ('TFO'), which are used to insulate power transformers. The closure would lead to higher prices for European consumers.

Commission Vice President in charge of competition policy Joaquín Almunia said:"If this acquisition did not take place, the Harburg plant would simply close down, dramatically reducing production capacity in Europe for a number of specific oil products. We authorised this acquisition because it is the only way to avoid a price increase for consumers."

The Commission examined the effects of the proposed acquisition on competition in the markets for the sale of naphthenic base and process oils and TFO. After the transaction, the merged entity will remain the only naphthenic base and process oil producer and the largest producer of TFO in the EEA. Nynas will face substantial competition only from Ergon, a US-based company that entered the EEA market as an importer in 2008. Therefore, the Commission initially expressed concerns that the proposed transaction could harm competition and opened an in-depth investigation (see IP/13/290).

However, during the in-depth investigation Shell demonstrated that it would not continue to operate the Harburg refinery, as in its current set-up it is economically unsustainable. The business model that will allow Nynas to operate the Harburg plant is different from the current one and requires significant investment. The Commission's in-depth investigation also showed that there are, other than Nynas, no alternative buyers for the acquisition of the Harburg refinery assets. Therefore, the most likely alternative scenario to the proposed transaction would be the closure of the Harburg refinery. This means that the reduction of the number of competitors in the market would occur anyway and would not be caused by the acquisition itself. Moreover the closure of the Harburg refinery would reduce the naphthenic base and process oil production capacity in the EEA below EEA demand. Demand for these products in the EEA would then have to be met by imports and consequently higher prices for consumers due to import costs.

The Commission also found that the acquisition by Nynas has positive effects on competition, as Nynas would achieve significant reductions of variable costs for its additional supplies, which are likely to be passed on to consumers to some extent.

The Commission therefore concluded that the transaction would not raise competition concerns.

Background

Nynas notified its proposed acquisition of the Harburg refinery assets to the Commission in February 2013. The Commission opened an in-depth investigation in March 2013 (see IP/13/290). On 19 June 2013, the parties were advised in a statement of objections that the proposed merger raised competition concerns. Nynas and Shell replied to the statement of objections in July 2013.

Nynas AB is active globally in the naphthenic base and process oils and TFO sector and has its core business in Nynäshamn, Sweden. Naphthenic base and process oils are intermediary products used in the production of numerous end applications, such as industrial greases, metalworking fluids, adhesives, inks, insoluble sulphur, industrial rubber, fertilisers, defoamers and additives. TFO are finished products, blended from base oils. TFO are used to insulate power transformers.

Nynas is jointly controlled by Petróleos de Venezuela S.A and Neste Oil Oyj of Finland.

Shell Deutschland Oil GmbH is part of the Shell group of companies ("Shell"), whose parent company is Royal Dutch Shell Plc. Shell is a fully integrated global group of energy and petrochemical companies involved in upstream and downstream activities, from exploration to refining to distribution and retail sales.

The 'Harburg refinery assets' are the Harburg base oil manufacturing plant to produce base oil from distillates and certain parts of the refinery which are necessary to produce distillates from crude oil. The remainder of the refinery will be retained by Shell.

Merger control rules and procedures

The Commission has the duty to assess mergers and acquisitions involvingcompanies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.

The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).

There is currently another on-going phase II investigation which concerns the proposed acquisition of Olympic Air by Aegean (see IP/13/361) in the airline sector, with a deadline set for 16 October 2013.